This paper presents a novel power transformer differential protection scheme based on dead angle of the Wavelet Energy Waveform (WEW). Distinguishing the magnetizing inrush current from internal fault current is accomplished by measuring dead angle of WEW. This scheme is investigated by using MATLAB and PSCAD/EMTDC simulation based model of a three phase, 315MVA, 220/400kV, 50Hz power transformer. The test results indicate that it can accurately detect and classify the faults with discrimination between internal fault and magnetizing inrush condition. This algorithm based differential relay (87T) is stable in case of external fault and provide precise operation even in the presence of DC offset in relaying signal.